AFTER Thursday’s poor second-quarter figures on the economy showing negative economic growth the opposition parties went ballistic and have forecast further mayhem ahead.
Even the Central Bank governor got in on the act this week, warning that the high cost of borrowing to the state strongly suggests the global markets expected the Government to slash more than €3 billion from government spending in Budget 2011.
Even before the poor GDP growth figures were in the public domain, Governor Patrick Honohan said deeper cuts were needed to reassure investors that the burden of debt will not cause us to default.
His intervention did not help to reassure the markets and the cost of borrowing to the state continues to rise.
At a time of such unprecedented uncertainty, some reassuring comments from the governor might have been more appropriate, but it’s doubtful that they would have done any good in the current context.
It is becoming increasingly clear that the economy is edging towards double dip recession, while further serious cutbacks in the next budget are being demanded by the markets. Such cuts will surely undermine the prospects for the country even further.
Perhaps most worrying of all at this stage is that, even with the efforts being made to get the national finances and the banking crisis under control, the markets continue to grind us down.
We can counter this by saying this is just another bout of Ireland-bashing.
That argument was advanced prior to the bank crash when the bank shares started to slip from mid-2007. Senior government ministers at the time were convinced that London financiers were working to undermine the banks.
In reality businessman Sean Quinn and the former Anglo Irish Bank chief Sean FitzPatrick did more on that front than any outside force and we are still trying to scramble back out of the quagmire created for us by the over-generous banks.
The markets have every right to be suspicious, and they are demanding more in interest rates from the state to cover the growing risk they attach to lending to the state. Having won back some market confidence last year as we moved to tackle the banking crisis, we have allowed it to drag on and the price being paid is the continuing rise in the cost of borrowing to the state as investors fear the cost of funding the bank bailout will cause us to default.
Investors continue to look askance at our perilous situation and powerful figures, including a previous IMF chief economist, are penning articles for the New York Times saying the chances of Ireland defaulting have risen quite sharply.
There are those within Ireland who firmly believe that we are a lost cause and the country is no longer generating enough income to service its debt. Some people of stature disagree with that view. The most recent authoritative voice to argue Ireland’s cause is none other than former attorney general Peter Sutherland.
Addressing the Institute of Directors in Dublin he said we have the ability to pull through this crisis.
The bitter pill, however, is that he believes the budget has to be slashed beyond the €3bn figure and that pay and the cost of services will have to be cut further to make us competitive.
The public sector has to be cut down in size also and the mounting pensions crisis has to be tackled.
Perhaps the most interesting point he made was that all the political parties needed to support the plan of action. Without that the markets will remain sceptical and the cost of borrowing will continue to rise.
We’ve been told that cuts of €3bn are all that the political system can bear, but, if all the mainstream political parties accept that more is required and are prepared to say it, we can find a way.
© Irish Examiner Ltd. All rights reserved